On 15 March 2019, the Foreign Investment Law of the People’s Republic of China was passed by the National People’s Congress of China. It will come into effect on 1 January 2020. The Foreign Investment Law makes tremendous changes to the current foreign investment legal regime, which is mainly comprised of three laws: the PRC Wholly Foreign-Owned Enterprises Law; the PRC Chinese-Foreign Equity Joint Ventures Law; and the PRC Chinese-Foreign Contractual Joint Ventures Law.

Key Changes

The Combination of Three Laws

According to Article 42 of the Foreign Investment Law, the law will replace the three older laws beginning 1 January 2020. In other words, the Foreign Investment Law will apply to all wholly foreign-owned enterprises, Chinese-foreign equity joint ventures and Chinese-foreign contractual joint ventures.

The Principle of Equal Treatment for Both Domestic and Foreign Investment

This principle runs throughout the Foreign Investment Law. Article 4 provides that the state will apply national treatment and the negative list to the preestablishment of foreign investment. For the fields of foreign investments that fall outside of the negative list, the principle of equal treatment for both domestic and foreign investment will apply. Article 31 provides that the business forms, structures and rules of activities of foreign-invested enterprises shall be governed by the Company Law of the People's Republic of China, the Partnership Law of the People's Republic of China and their subordinate legislation that apply to domestic entities. In other words, there will not exist any special provisions on the business forms, structures and rules of activities of foreign-invested enterprises.

Investment Promotion and Protection

Under the Foreign Investment Law, the foreign-invested enterprises will (i) benefit from the national policies that support the domestic enterprises’ business development, (ii) participate in government procurement activities though fair competition, and (iii) raise funds through issuing stocks and corporate bonds. The Foreign Investment Law also allows the foreign investors to freely remit certain funds into or out of China in RMB or any other foreign currencies, which has always been the major concern of many foreign investors. The protection of intellectual property also plays a key role in the Foreign Investment Law. The technical cooperation carried out freely will be encouraged and the mandatory transfer by administrative measures as well as the nondisclosure provisions imposed by the administrative authorities or its officials will be prohibited.

The Impact of the Foreign Investment Law

The newly issued Foreign Investment Law will end the era of foreign investment controlled by the outdated laws and show the world the intention of China to further open its markets to the world.